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More Flabby Performance at Weight Watchers

There's always a new excuse and a new plan, but investors would do well to maintain skepticism.

It's always something at Weight Watchers(NYSE:WTW). Sometimes it's hurricanes that are to be blamed for disappointing performance. This time we're to believe it was the World Cup that hurt European performance. Funny thing is, while the excuses and proposed new plans often change, the same management and poor results don't.

This time around, revenue was up about 3%, as growth in North America was offset by weakness in the international segment. Gross margins were very slightly lower, and operating income basically matched the performance of revenue. Remember, the year-ago period included one-time expenses for the acquisition of WeightWatchers.com.

Sifting through the results, attendance was weak overall (down 4%), as anemic North American attendance growth (up 2.2%) was counterbalanced by a double-digit decline overseas. And though the online business continues to be the best-performing part of this story (up 18% this quarter), it's just barely more than 10% of total revenue and, as such, not really able to counteract the sluggish attendance trends.

No surprise to me, the company both lowered guidance this quarter and introduced a new plan to theoretically improve results. This new plan will be a monthly pass priced at a 20% discount to regular meetings fees and will include free access to the company's online products. With this new plan coming out in January, the company won't be using the relatively successful Seasons Pass this year but will reintroduce it again later. Confused? Imagine how the customers are going to feel.

In many respects, Weight Watchers is a consummately frustrating company and stock. While it generates prodigious returns on capital, it's still not that cheap and I don't think it's particularly well-run. Then again, other diet and fitness plays like NutriSystem(NASDAQ:NTRI) and Life Time Fitness(NYSE:LTM) aren't cheap, either, and you could argue that they don't have the same level of enduring brand value as Weight Watchers.

With the stock down a lot already, it's hard for me to be as negative as I once was. I certainly wouldn't want to throw my lot in with this management team, but sooner or later, this stock will reach a price at which its cash flow generation ability will make it worth a serious look. That's not today's price, though, so I'd still stay clear.